The Reserve Bank governor, Michele Bullock, says Australia’s pickup in inflation was anticipated by the RBA, but it is too early to determine its impact on interest rate settings.
Appearing before Senate estimates for the first time since becoming governor last month, Bullock on Thursday said the September quarter inflation figures were “a little higher” than the central bank had predicted in its August forecasts.
Still, the outcome was “pretty much where we thought it would come out”, she said, adding that “although services inflation is declining, it’s still higher than we’re comfortable with and it’s also reasonably persistent”.
Bullock earlier this week said the RBA board would “not hesitate to raise the cash rate further if there is a material upward revision to the outlook for inflation”.
The senators Jane Hume and Nick McKim were among those to press the governor on whether the CPI figures – including a quarterly rise in core inflation – constituted a “material” change.
“We’re still thinking about that,” Bullock said, adding that she wouldn’t “say one way or the other”.
“We’re looking at some of the more persistent parts of inflation [and] asking ourselves, are there signs that those might be coming down in the future?
“Even though we haven’t raised interest rates since our last interest rate rise in June, we’ve made it very clear that we might need to go again.”
Westpac on Thursday became the last of the big four banks to predict the RBA would lift its cash rate at the Melbourne Cup Day meeting on 7 November.
National Australia Bank had been forecasting a November rates move for months while ANZ and the Commonwealth Bank changed their forecasts from another pause to a rate rise after the inflation figures landed on Wednesday.
Investors now believe there is about an 80% chance of a 25 basis-point increase in the cash rate to 4.35% at the next meeting, up from a 40% chance before the latest figures, according to Bloomberg. Reuters estimates the chance at about 60%.
The RBA will base its decision in part on updated forecasts that will be released on 10 November in the bank’s quarterly statement on monetary policy.
The RBA had predicted the September quarter’s core inflation to come in at 0.9% but it was higher at 1.2%. The August statement also had inflation declining to its preferred 2-3% target band by mid-2025.
September quarter wages data will be released by the Australian Bureau of Statistics on 15 November, more than a week after the next RBA rates decision.
But Bullock said she didn’t believe there was “a sign of a price-wage spiral at the moment”.
Asked by senators whether Australia’s “narrow path” to a soft economic landing was widening or narrowing, Bullock said: “We’re probably on the same path.”
She noted that the US economy had proved “very resilient” to higher interest rates but this was supported by consumers running down their savings.
By contrast the savings of Australians “have stayed intact” from the Covid period build-up, she said, “and in fact people are saving”.
As for China, Australia’s biggest trading partner, Bullock said that country’s property sector remains “a big area of risk” with many private property developers “insolvent”.
Still, Australia’s commodity exports, such as iron ore, had been “holding up”. China had set a 5% GDP growth target for the year, and would “probably make it”, she said.
Christopher Kent, an assistant governor, said the government “had a lot of tools and a lot of capacity” to respond if further problems arise.
